Nani Alfrida , The Jakarta Post , Jakarta | Thu, 01/21/2010 10:18 AM | Business
It is feared that the ASEAN-China Free Trade Agreement (ACFTA) could hit the domestic steel industry badly and the government is expected to give extra attention to this before the initial public offering (IPO) of state firm PT Krakatau Steel.
State Minister for State Enterprises Mustafa Abubakar said Wednesday that the government would take this into consideration before the planned sale of 20 percent of Krakatau Steel’s shares. The government previously planned to launch the IPO in quarter two.
“We have to reconsider and review the IPO [of Krakatau Steel]. We still expect the firm to hold the IPO this year,” he said after a meeting with members of the House of Representatives.
The 39-year-old company had planned to sell its shares last year, aiming to net US$400 million, which would have been used to modernize its steel factories. However, the plan had to be delayed due to the low international market price of steel.
Mustafa said Krakatau Steel still had to deal with several problems in facing the FTA such as lack of capital, insufficient energy and poor supply of raw materials as the company depends so much on imported iron and scrap.
He added the company also suffered from lack of upstream and downstream infrastructure in the steel sector, which was needed to help support production of various products.
Currently, the company has an annual production capacity of 2.5 million tons of steel, less than half of the total 6 million tons of annual domestic demand.
According to Mustafa, the FTA could jeopardize the domestic steel industry as 95 percent of steel
products in the country have not met the Indonesian National Standard (SNI).
“The government has to pay more attention to the [steel] industry, more than other industry,” he said, adding that the steel industry was very vulnerable after having been badly hit by the global economic crisis in 2008.
“We forecast the steel industry will bounce back by 2013,” Mustafa said, adding the industry currently absorbed 250,000 workers.
The minister also explained that the engine sector and non-organic chemical sector were also badly affected by the FTA.
“The iron and steel sector has 114 tariff posts [affected] while the engine sector and non organic chemical sector have 10 posts and seven posts respectively,” Mustafa said.
The FTA became fully effective as of Jan. 1 this year, applying zero tariffs on 6,682 tariff lines in 17 sectors, including 12 in manufacturing, and five in the agriculture, mining and maritime sectors.
Previously, the Indonesian government had submitted a proposal to the ASEAN (Association of Southeast Asian Nations) Council to postpone tariff reductions on 228 items (or tariff posts) under the free trade agreement between the regional grouping and China.
Government was also concerned the FTA might hit the revenue of a number of state-owned firms.
However Finance Minister Sri Mulyani Indrawati said the agreement would not affect profits gained by state companies, nor their contributions to state coffers.
“Instead the FTA will have a positive effect on the profits of state enterprises,” she said, adding that the increasing of net profits was driven by cheaper imported raw materials.
The government has targeted a 21.23 percent growth in the net profits from state enterprises this year, which would be a 15.17 percent increase in profits from a year earlier.
The net profits of state enterprises this year are predicted to reach Rp 90 trillion, compared to Rp 74.28 trillion in 2009.
http://www.thejakartapost.com/news/2010/01/21/fta-may-delay-date-krakatau-ipo.html
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